Vela's future had been up in the air because of a buy-back clause that would have allowed the Gunners to bring the Mexico international attacker back to London over the summer for a reported four million euros.

Talks between the two clubs to resolve the issue have been concluded, Real said in a statement on Tuesday.

"I have always said this is my home. I am very happy in San Sebastian, there is no place like this, and I told the president that when he asked me about my intentions," he said.

"We were aware that it would not be easy, but fortunately it has been resolved well and all parties are happy. This club, this team, has the ambition to keep improving, and I am convinced that we will have an exciting year."